Judges can exert power over legal interests. People using only FLPs, either foreign or domestic, can be pressured into less favorable settlements by their creditors, than if they had also used an IAPT. This is because the person holds legal rights (limited partnership interests) and the creditor can obtain a charging order.

In California, for example (but not in Nevada), a creditor can foreclosure on FLP interests. If the FLP is foreign, the issue is: Will the foreign court respect the California court? The answer most likely is No.

Although all a creditor can obtain against an FLPis a charging order (essentially a lien), the seriousness of this remedy has been downplayed. A charging order can seriously restrict how your FLP may operate, sell or buy assets or make partnership loans.

How Does It Work?

The diagram below shows a "Low Profiler" owning 99% of a domestic FLP

When a lawsuit is threatened, the foreign trustee, holding the limited partnership interests, votes to dissolve, and 99% of the DFLP’s assets are distributed to the IAPT.

Questions

1. I’m Uncomfortable with My Assets under the Control of a Foreign Trustee.

    What Protection is Afforded Me?

Assets in a FLP . You, as the general partner, will have direct and absolute control. You will write the checks and you will make all the decisions. The offshore trust will be the limited partner and, as such, it will have no voice in the daily operation of the FLP. All that the foreign trustee will hold will be a piece of paper showing he is the 90% plus limited partner of the FLP you will totally control.

Assets in an IAPT. A friend or relative, as the Protector, will have the power to veto any action of the trustee, and to remove and replace the trustee with or without cause. You can design a plan to require that all trust accounts and assets must have both the Protector's signature and the trustee's signature in order for any transfer to take place.

2. Why Can’t I Use an Offshore FLP without using an IAPT?

A creditor has three basic remedies against an Offshore Family Limited Partnership:

Charging Order. If a U.S.person owns the FLP interest and the U.S. court has jurisdiction over the person, the court can charge the interests in the foreign entity.

Judicial Order.  Restricting the activity of the FLP. The court can issue orders if the General Partner is present in the U.S.

“Piercing the Veil” and Judicial Foreclosure Sale. A judge may try to pierce or order foreclosure, but will the foreign court respect such order?

The combination of an FLP with an IAFP allows you as the general partner to retain direct control over all the assets until a creditor attacks, and upon creditor attack the client will obtain the benefits of the FAPT.

3. How does the Domestic IAPT work?

You place your assets into an FLP. You are a 1% general partner, the IAPT is the 99% limited partner. When a lawsuit is threatened, the foreign trustee, holding 99% of the FLP interests, votes to dissolve the FLP and 99% of the FLP’s assets are distributed to the IAPT.

4. Is this Legal? Isn’t it a Fraudulent Transfer?

It is legal. It is not a fraudulent transfer.

1. In most cases, you transferred your FLP interest years before a lawsuit was on the horizon.
2. The foreign trustee, not you took action to dissolve the FLP.
3. The foreign trustee had a legal duty to protect trust assets (the 99% interest) from lawsuits.
   

WITHDRAWING BRIDGE

The "Controller"

An LLC is a legal entity. Members own interests that a judge can exert power over. A trust is an equitable entity. Its beneficiaries own nothing and their interest is only a potential not an absolute right which a judge can exert power over.

How Does It Work?

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When a lawsuit is threatened the foreign trustee 100 percent member, votes to remove the manager (not dissolve). Assets stay in the Foreign LLC. Trustee appoints an offshore manager.

The combination of a single member Foreign LLC with an IAPT allows you as the manager to retain direct control over all the assets and yet obtain many of the benefits of the IAPT.

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1. Is this Legal? Isn’t It a Fraudulent Transfer?

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    It is legal. It is not a fraudulent transfer.

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You transferred your Foreign LLC interests years before a lawsuit was on the horizon..

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2. How Does the Foreign LLC and the IAPT Work?

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The family places their assets into a Foreign LLC. The IAPT is the 100% member.

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3, What Reporting Forms do I need to File if I Use a Foreign LLC?

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None, if you elected under the Check the Box Regulations to be taxed as a disregarded entity.

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4, I’m Uncomfortable With Assets Under the Control of a Foreign Trustee.

    What Protection is Afforded Me?

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Your Assets are in an LLC. You (as the manager) will have direct and absolute control. You will write the checks; you will make all the decisions. The IAPT will be the LLC member (analogous to a shareholder in a corporation), and, as such, it will have no voice in the daily operation of the LLC.

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Assets in an IAPT. A friend or relative, as the "Protector,” will have the power to veto any action of the trustee and to remove and replace the trustee with or without cause. As the Protector, that person can also require that all trust accounts and assets must have both the Protector's signature and the trustee's signature in order for any transfer to take place.

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5. Why can’t I Use an Offshore LLC Without Using an IAPT?

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   A creditor has three basic remedies against an LLC:

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Charging Order. As the person owns the LLC interests, and the U.S. court has jurisdiction over the person, the court can charge the interests in the foreign entity.

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Judicial Order Restricting the Activity of the LLC . The court can only issue orders if the Managing Member is present in the U.S. They would normally not be.

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“Piercing the Veil” or Judicial Foreclosure Sale. A judge may try to pierce or order foreclosure, but will the foreign court respect such order? A foreign court (in a properly selected jurisdiction) will not respect a U.S. court vis a vis an IAPT.